Profitability Fears Linger as Transocean Stock (RIG) Surges on Q1 Revenue Beat

Transocean (RIG), a major player in the offshore drilling industry, recently released its Q1 2025 financial results, helping to catalyze the stock up over 7% at points in the past week. While the company demonstrated solid revenue growth, beating market expectations with $906 million in quarterly revenue, it posted a larger-than-expected net loss of $79 million. Yet, it still managed to beat analyst projections for EPS, posting—$0.10 per share vs. the expected—$0.11.

While this performance has lifted the stock, market participants remain cautious, particularly in light of the upcoming leadership transition in May 2025, when Keelan Adamson will take the helm as CEO.

The central question for investors remains: Does RIG’s current share price represent a value opportunity despite its ongoing financial challenges? I believe the answer is likely “yes” over the long term, but the stock will continue to reflect the company’s current challenges in the short term.

A Company in Transition

Transocean is a leading provider of offshore drilling services for oil and gas wells worldwide. The company specializes in the more technically demanding sectors of the offshore drilling business, operating a high-specification fleet that includes ultra-deepwater, harsh environment, and midwater drilling units.

It has recently outperformed industry peers in revenue growth; however, that hasn’t translated into bottom-line success and profitability. Market performance has similarly lagged, with RIG’s stock significantly underperforming the sector and key peers. This has driven the stock into deep relative value territory, trading at 0.5x price-to-sales versus a sector peer average of 1.2x.

Despite its profitability struggles, as of the quarter’s end, Transocean reported a substantial backlog of $7.9 billion, which suggests strong future revenue potential. Also, during the quarter, management made strides in reducing debt by paying down $210 million. If management can trim expenses while maintaining growing revenue, shareholders could be in line for a pleasant profitability bump.

Tapped to execute the turnaround will be Keelan Adamson, who steps into the CEO role in May, taking the helm as the company tries to navigate the challenging market conditions while strengthening its financial position.

Revenue Increased, Yet Profitability Lags

Q1’s financials showed strong revenue momentum but persistent profitability issues. Adjusted EBITDA came in at $244 million with a margin of 26.9%, down significantly from $323 million and 33.9% in Q4 2024. On a positive note, revenue efficiency improved to 95.5% from 93.5% in the previous quarter.

Unfortunately, bottom-line performance was impacted as operating expenses increased to $618 million, partly due to a jump in legal fees and shipyard costs. At the same time, a high debt burden has created considerable financial risk and limits flexibility. These factors have all contributed to its profitability metrics being weaker than its Energy sector peers.

Deepwater drilling ship in operational condition at offshore oil field.

The company has adopted several strategic initiatives to address these issues, including adopting more diverse and flexible contractual arrangements, altering risk-sharing mechanisms, and offering incentives in drilling contracts. It is joining smaller operators in rig consortia to strengthen bargaining power. The company is also investing in AI to help improve performance monitoring.

What is the Target Price for RIG in 2025?

On Wall Street, RIG stock carries a Moderate Buy consensus rating based on three Buy, six Hold, and zero Sell ratings over the past three months. RIG’s average price target of $4.10 implies approximately 78% upside potential over the next twelve months.

See more RIG analyst ratings

Analysts following the company have a mixed outlook. For instance, Barclays analyst Eddie Kim recently reiterated a Buy rating while maintaining a price target of $3.50. In contrast, Evercore ISI analyst Jason Bandel maintained a Hold rating with a higher $5.00 target.

Meanwhile, Susquehanna’s Charles Minervino lowered its price target to $4 (from $5), citing greater economic risks, lower crude prices, and limited activity improvement that could affect customer spending.

Despite current challenges, analysts see a path to improvement for Transocean. While the short-term outlook remains cautious with expectations of continued losses through 2025, analysts forecast a return to profitability within the next three years.

High Risk-Reward Play for Value Investors

Transocean is a high-risk, potentially high-reward opportunity. The stock’s current valuation offers substantial upside if the company can successfully execute a turnaround strategy.

Strong revenue growth, substantial backlog, and operational improvements all point to potential positive upside. However, the company faces persistent unprofitability, high debt levels, and commodity price fluctuations. Further, it operates in a volatile industry with ongoing geopolitical and economic uncertainties.

Value-oriented investors with a higher risk tolerance might find RIG a compelling option. In contrast, more conservative investors may want to wait for clearer signs of financial improvement before establishing a position. I remain tentatively bullish with a long-term outlook.